This could revolutionize investing in India - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

This could revolutionize investing in India 

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In this issue:
» Robert Shiller highly skeptical of recovery
» US dollar may appreciate in the short term
» DLF says no danger of price bubble in real estate
» Shareholders to get to decide executive pay
» ...and more!

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In order to give a fair deal to MF investors, capital market watchdog SEBI had earlier decided to do away with the concept of entry loads. While that move was indeed path breaking enough, it did little to dissuade distributors to push through schemes of their choice to retail investors. However, now even this practice is likely to meet its end. As per a leading daily, SEBI has issued directives to a couple of firms to come up with a MF trading platform, which is likely to be an exact replica of how share trading is done currently.

In other words, just as investors sell and buy shares online at the click of a button, they would be able to do the same with MF units, buying and selling them without an intermediary. Considering the wide implications this can have on the MF investing culture in India, it will not be out of place to call this the second revolution in securities transaction in India, the first one being the electronic trading of shares. Besides drawing more people towards equities and also various debt instruments, such a step will also create level playing field for all mutual fund schemes as the option of pushing through schemes by paying extra commissions to distributors will all but vanish from the scene. Looks like a win-win situation for both the investors as well as the mutual funds indeed.

01:02  Chart of the day
Currency printing presses are working over-time and the interest rate scenario is lax the world over. It's not a surprise then that one of the foremost worries on investors' minds right now is of the threat of impending inflation. Gold has been much talked about in this respect and India too has not kept back with its recent purchase of 200 metric tonnes of gold from the International Monetary Fund (IMF) a couple of days back. But today's Chart of the Day shows how over the long term stocks comfortably beat consumer price inflation. It plots the yearly increase in the consumer price index against the yearly change in the Nifty. Even though the returns in the Nifty may not be correspondingly higher during times of inflation, you will do well to note that over the last 13 years, while the average annual inflation has been 6.2%, stocks have returned an annual average of over 15.5% during the same period.

Source: Asian Development Bank, CMIE Prowess

Yale University economist and bestselling author Robert Shiller has this uncanny knack of sound alarm bells when a crisis is just around the corner and hence, whenever he talks of one, his warning cannot be taken lightly.

In a recent interview, Mr. Shiller has expressed his concerns over the 5% rise in home prices within the span of just 6 months, which he believes is largely on the back of optimistic psychology rather than strong fundamentals. He further goes on to say that while we may not see another asset bubble very soon, a recovery of similar kind was seen in the midst of the Great Depression, when stock markets had tripled between 1933 to 1937. However, as we all know, the Great Depression then lasted till the end of World War II. Whether or not Mr. Shiller is right once again with his predictions, this is definitely a warning that investors betting on a quick recovery need to pay heed to.

The US dollar in recent times has been bashed left, right and centre. The reasons have been many; America's recession, its gargantuan debt and the rising power of emerging nations, particularly China which has questioned the status of the dollar as the world's reserve currency. But if Marc Faber and Elliot Wave analyst Robert Prechter are to be believed, the dollar may very well appreciate. Infact, Marc Faber has gone one step forward and said that the dollar could appreciate 10% against the euro during the next quarter. This is indeed an interesting view given by Faber considering that he has been the advocate of the dollar's collapse since a long time. As for us, we believe that while in the near term the dollar could rally because of the overly bearish sentiments towards it, from a longer term perspective, unless the US reduces its deficit the dollar could remain under pressure.

Despite the RBI's last week's indication that there was a bubble building up in the Indian realty market, DLF, India's largest real estate company doesn't seem to agree. As told by Rajeev Talwar, the executive director at DLF, in an interview with Bloomberg, "People are now secure enough to invest in residential housing as companies have eased up on cutting work force. There is no danger of a price bubble, or prices increasing or galloping as they did in 2005, '06, '07." Well, we don't know which region Mr Talwar is referring to because as far as prices in cities like Mumbai and Pune are concerned, they seem to be completely out of reach of an average middle class person!

The party for highly paid executives who do not deliver for the shareholders may finally be over. The government has taken the first step towards what is a much debated point in the corporate sector. According to reports, the government is placing the power to decide executive's remuneration in the hands of the shareholders. While the process still has to be decided, it is a welcome step towards greater transparency. Shareholders, by this legislature, will be able to reward the executives who deliver and penalize those who don't, surely a welcome step towards the protection of a shareholder's interests.

Meanwhile, despite some weakness, Indian markets managed to hold on to their gains with the BSE-Sensex trading 130 points above the dotted line at the time of writing. PSU stocks gained the most today, up over 4% on the back of the divestment plans the government announced yesterday. Realty and metal stocks too had a good run. Amongst global indices, while most Asian stocks closed in the positive, European stocks too have opened on a positive note.

04:40  Today's investing mantra
"The investor cannot pinpoint just how much per share a particular company will earn two years from now. As a matter of fact, the company's top management cannot. Under these circumstances, how can anyone say with even moderate precision just what is overpriced for an outstanding company with an unusually rapid growth rate? If the growth rate is so good that in another ten years the company might well have quadrupled, is it really of such great concern whether at the moment the stock might or might not be 35% overpriced? That which really matters is not to disturb a position that is going to be worth a great deal more later." - Philip Fisher
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11 Responses to "This could revolutionize investing in India"

Dore Swamy

Feb 4, 2010

I hope equitymaster authorities will compile a list of stocks complying with all the above said critaria for the ease of picking up of the right stocks.


N.M.Rajugopal Shreedhar

Nov 8, 2009

MF trading goes online -- this is really great news! I have my doubts whether this can materialise soon --even when trading hours were extended the fund houses were having difficulty in updating the NAV's by end of Trading day. So how will they be able to compute the NAV's instantaneously just like share prices? Any suggestions?


Naresh Kumar Vohra

Nov 8, 2009

Information given is good and helps small invester to foresee what is coming and plan accordingly


Dr P mulay

Nov 8, 2009

The prices might remain high in numerical terms, however the currency will devalue reflecting a actual decrease in price. High time to get out of stock market.


sanjay shah

Nov 7, 2009

shareholders to decide on executrive pay!!!!
shareholders are owners and institutions.for non owners-read individual small investors -its game to see things happening where executives(relatives of owner mostly) make crores and he does not have job paying more than 10000 /25000 pm.
so end result housing out of reach of most middle class ,which form small investor.
social unrest coming soon. can one predict timing of this like sensex???



Nov 6, 2009



shankar jog

Nov 6, 2009

As you have compared equity market gains against inflation rate, would you come out with camparison of MF gains against inflation rates ? Please do so.


Christopher Pradhan

Nov 6, 2009

My dear, its never going to be a win-win situation for both the investors as well as the mutual funds, because the major chunk of investment is through Financial advisors. The MF stands to benefit alone on this issue and not the investor. out of 1000 investors, only a few will know what is a fact sheet or a portfolio of mutual fund scheme. The MF will push their schemes to investors as per their convenience. There are much more better things to look into by SEBI for eg. if they are trying to do away with mf advisors, then they should also see that mfs should have a zero office module, why so many offices all across the country, and so much of work staff, increasing the cost of the nav, for which the investor has to pay for. The high salaries of staffs who are not worth it. I have experienced this, I was at one time with a mf registrar and believe me the Regional Manager had no idea of an application form nor the fill-up and the salary he was drawing was sky high, will this not increasing the cost of the mutual fund scheme? the people for data entry were paid peanuts and expected to put in more work and result was a lot of data entry errors. Will the investors have the time to run after correcting these things. Any way let SEBI take a call.

Mr. Rajeev Talwar, is a very rich man, so thinks in those terms, his feet are not on the ground and so is Bloomberg.


dr vijay barve

Nov 6, 2009

your opinion about housing prices is correct. even in a city like nashik prices are beyond ordinary person. the city has got no it or financial companies with high salaries. last year most of the sales were from outsiders who felt prices are low as compared to inflated prices in other metros.but price correction seems difficult as most of the land belongs to beurocrats,politicians,big real estate players and there collegues.with removalof land ceiling act and no taxation on holding unused land they can wait for a long time.let us hope wisdom prevails and social unrest does not occur due to unaffordable housing and commercial premises.dr barve


Radheshyam Sharma

Nov 6, 2009

I don't know how the small share holders can control the pay of the CEOs.
In most companies, the CEO and other top management people hold the highest percentage of shares and they can get any resolution passed.
The votes of the retail of small investor is fractured and most do not even attend AGM.
Small investors hardly ever go to AGMs as they know their votes hardly count as the promoters can get any resolution passed.
If justice was to be done, in any resolution where salary and perks of top mangaement are concerned, the promoters should not be allowed to vote.

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